Editorial: A Growing Gap Between Real Estate & Land Use

The issue I have with real estate developers these days is the fact that a number of them don’t see real estate as a “multiplier” (in other words, something that influences a bigger picture). For some, it’s a businessman’s game, where politics and money sort of run the show– to the point where properties are nothing more than a “meaningful” investment of which a return is to be reaped. And that’s it: if rent and revenue can exceed capital, contracts, and taxes, then the development is a fiscal winner. On the other end, many of these businessmen aren’t terribly concerned with land use on the micro and macro scale. A number of industrial and suburban tract developers have failed to realize the detrimental potency of their impacts. To them, it’s nothing more than meeting codes and zoning, mitigating impacts, and just being superficially accommodating to the public. It’s a necessity, or a hassle, for them to have to show for a bit of humanity by flashing a smile through the bureaucratic layers between concerned citizens and city planners.

‘Land use’ is pretty much a term that’s been dropped out of the corporatist developer’s handbook. I think the humanism that really evolved with architects like Alvar Aalto hasn’t just been overlooked, but essentially forgotten. What does it mean to make a property really “meaningful?” To be able to accommodate patrons and inhabitants is almost a qualifying prerequisite to conceiving any structure, but the real test is the relationship the property has with not just the neighborhood, but the precinct, the city, the region, and all its residents. On a multitude of levels do we begin to understand how real estate establishes land use not just in environment and planning, but in form, functionalism, humanism, and more. In this age, we’ve allowed the markets to drain the life and soul out of the very vessels we build to live, work, and shop in.

More below the jump.

So what is this life and soul? Pretty architecture? Green space to appease the politically correct masses? Ultimately, I realize that it’s where we start to separate form from function that our troubles really begin. There is a mutual dependency between both where one cannot succeed without the other. You see, a building can do something, but it might not be something. I once asked a planner from the Seattle DPD on how much emphasis the agency put on form-based zoning. The answer was none, much to my surprise. You can blow open the cap on zoning restrictions. You can stuff as many people as you want into urban villages. You can build towering skyscrapers far into the sky. All these things with a great transit system to boot. But even that won’t matter if land use isn’t understood as a pluralistic discipline.

Land use goes far beyond zoning. It’s more than codes, ordinances, numbers, plans, renderings, and drawings. It’s very literal in that we are figuring out how to best use land so that amidst all the ancillary goals of reducing carbon output, increasing density, facilitating mobility, etc. that we really are making communities livable. Real estate has always been an important companion to that. For it to become to remain focused on just being an operational business is a shame that we may regret far into the future.

It’s a constant disappointment that transit advocates have found such fierce opponents, let alone allies, in the real estate industry. The idea of a shared goal between all parties seems convincingly simple, yet so hard in practice when politics and money confound it all. It’s true that almost any enterprise has succumbed to some aspect of political corporatism, but to allow it to saturate our quality of life has been frustrating to say the least. With transit taking the larger role of shepherding growth and development, we need developers willing to understand mobility on all levels. How tenants move throughout these spaces is just as important as how they get get to work.

It’s important to remember that both municipal planning agencies and developers all shoulder a burden of responsibility, some of which overlays to form what has, over time, turned into a grey area. Where there is this overlay, a great deal of discretion exists on the basis that developers can shape land use as much as they do buildings. It’s discouraging when this discretion is ignored. If there is no motivation to apply form to function, vice versa, and everything in between, then real estate has failed to compliment land use.

My one hope for American cities has long been tarnished by the fact that we’ve embraced a culture formed on markets built solely upon monetary output, not quality of life. The demand for money (and ultimately prosperity) is there, and the markets have in turn, adequately supplied. But we’ve been challenged by an oversupply of impactful anomalies that have undercut our vision of livable communities–smog-choked freeways, endless strip malls, and congestion. Was the demand there ever that strong to begin with? I’m not advocating for having the real estate industry regulated or restricted (which is already done on several levels of government) more than it already is, but to simply encourage the industry as a whole to establish shared goals: livable communities, aesthetically accommodating environments, ecologically conscious developments, availability of non-SOV transportation modes, and much more. If there is demand there, then developers should be compelled to respond.

In this case I would point to the recent study “The High Cost of Anarchy” which showed that it was suboptimal overall for every person to pursue their own perceived optimal strategy. While not advocating autocracy, it’s indicated that it’s best when a limited set of options are presented.

Strip malls are a function of tax law which allows buildings to be full depreciated over 20 years. So the effect is that the builder for those 20 years writes off all of the income from the rent against the “loss” of the building. Then at the end of the 20 years, owns the building free and clear and paid no income taxes on it. Pretty sweet deal eh?

Investors are waking up to the fact that the vacancy rate is approaching 20% and that many of those commercial real estate loans will never be repaid. The WA Mu tower just was sold for 1/3 of what it cost to build.

This post is right though real estate developers take advantage of improvements in transportation but don’t appear to help the process of building that infrastructure at all with time or money. In fact some like Martian Selig who actively funded the recall vote for the Monorail work against improving mobility. And if you think about from Mr. Selig’s perspective it makes sense. If people can easily move long distances quickly than any property along that corridor is worth as much as any other. But when you limit the land to build on, by concentrating it in one area, and you own those buildings, then your property is worth more.

Deprecation is far from a free ride. The amount is only a small offset compared to other costs like finance (the mortgage payment), property taxes, and maintenance. The property taxes are likely to increase several fold over 20 years but your depreciation is fixed. There’s a good chance a strip mall building will end up being demolish if the land is sold. If you do sell at a profit then tax law has this nice little thing called recouped depreciation and you end up paying back everything you got as a deduction (happens on virtually every rental house sold).

Actually that was the WaMu Center that was recently sold. The Washington Mutual Tower is a really cool building that was constructed after the hideous “box that the Space Needle came in” and incorporates many features legislated into the architecture. Unfortunately those lessons seem to have been forgotten in the twenty odd years between the construction of the two buildings.

I agree the, the WaMu Tower (aka 1201 Third Avenue) is a much better building, especially at the pedestrian level, than the WaMu Center. The only redeeming feature of the WaMu Center is the space for the Seattle Art Museum.

I’m really disappointed NBBJ failed so badly on this project and the Four Seasons hotel across the street.

NBBJ fails on street presence in nearly all their projects. However, a friend who used to work for WaMu said the interior workspaces in the WaMu Center were much better than at the Washington Mutual Tower, so I think NBBJ does pretty good at that.

I’ll also argue that strip malls serve a segment of the business and customers who cannot afford the higher overhead of renting space in the regional malls. (although that rent structure is changing in many parts of the country) Thus a business which specializes in a niche market exists because it can in a strip mall. And that we as a nation would be poorer if that were not so.

PS.
I hate strip malls. They are ugly and leach off the road infrastructure, and are extremely difficult to serve via rapid and efficient transport. But I have been known to buy stuff from those niche stores, because they exist no where else.

The other home for these sort of businesses are older retail and industrial properties (generally pre-1960 if not pre-WWII). Unfortunately these are the properties that are torn down when a developer is assembling a half or full block lot which is necessary to make modern projects pencil out. Even when the buildings are renovated the retail rents tend to be in the same range as new construction which is unaffordable to niche businesses.

There is a reason most new mixed use buildings seem to all have a dry cleaners, a nail salon, a tanning salon, and a Quizno’s or a Subway. These are the only businesses who can afford the rent for new construction.

Exactly right. There is plenty of room for innovation in most any neighborhood in Seattle. A small shop in the International District has to be dirt cheap, and I saw a whole restaurant in the University district (on University, at that) for sale for $30k. But let’s not forget the supply/demand equation. As long as developers build more retail than they destroy (which certainly isn’t the standard), then more Quizno’s that would have taken an older space elsewhere will move into the new spaces, leaving more space for interesting business elsewhere.

Which is why it was a crime that the Four Seasons was allowed to move in with only two street-level businesses on 1st, leaving the rest of the block bland concrete. We could have fit a dozen small retail stores there.

That $30k doesn’t buy you the space. All you get is the sign, the kitchen equipment and some tables and chairs. You’re rent will be due every month, payroll, cooking supplies, utilities, taxes (B&O tax even if you’re losing money every month). There’s a good chance the business is for sale cheap because running it is consuming someones entire life and making little to no money. Remember, the Ave dies in the summer and during winter and spring break; you’re almost operating a seasonal business. My sister-in-law owns a restaurant on the Ave and it’s taken almost two years to get it to the point that it’s break even to turning a small profit in a good month. And that’s taking zero salary as the owner working six days a week, 12 hours a day.

Unfortunately it does not get you the building, although I can definitely see how you could interpret the loopnet listing that way. The little sandwich shop building directly south is for sale at $1.2 million…

$40k is about right for a business asset sale if it includes the kitchen equipment and a renewable lease.

Upper University Way seems to be a tough spot to have a restaurant or bar, at least as compared to further South. There’s a lot more “churn” and vacant spaces seem to take longer to fill. If a streetcar gets built on the Ave it should go at least as far as Ravenna (if not 65th and the Roosevelt LINK station). It would be a big help to businesses between 50th and Ravenna.

I thought new retail homogeneity had more to do with which chains were expanding quickly. Seriously, do tanning salons make that much more money than say, a branch of the Thanh Brothers?

That said, I’ve heard the argument that a lot of new retail spaces are low quality, because they have too much window frontage and rarely have depth for a back room. I’m not sure I know enough about retail to have an opinion about whether that actually makes things worse across a neighborhood, but it does limit the range of business that can move in (i.e. no hardware stores).

Yeah, this is a common problem. All the new condo or apartment projects in the city seem to have first floor retail. Great. But as Steve mentions the storefronts are so shallow and often times have a lot of odd spaces that all you can get in there is a nail salon, tanning salon or some professional offices like an architect or something. IMHO, that doesn’t really contribute to the neighborhood all that well, especially when the landscape is already littered with those types of stores.

There’s a condo project being proposed on Phinney right now that will demolish an old building which currently houses a Chinese restaurant, breakfast place and a dry cleaner. The plans for the condo have this same shallow storefront. No way are you getting any restaurants in there afterwards. Even something like a clothing store would be difficult.

But in response to this article, I think Rex below sums it up about right. This is capitalism. Well, to an extent. It is capitalism within the framework of gov’t regulations. The land and building IS an investment. If you find a developer that wants to build meaning into it, then consider yourself lucky. The developer has to build for “what is”, not “what could be”. The stuff that’s “in the public interest” really is the realm of the government. It always has been, it always will be.

That’s why you need better, stronger land use, zoning, et al. The gov’t doesn’t make it easy all the time for the developers either. One of the reasons you see the same (awful) towhnhouses go up everywhere is because of how difficult it was to put up anything drastically different or interesting. That was essentially an “approved design” with minimal red-tape.

Speaking as a person whose family owns such a Quiznos in a recently constructed mixed use building, even we can’t afford the rent due to the economy. The landlord is not very nice on negotiating a lower lease. The sooner we can get rid of it the better.

The underground parking in that building is like 5 stories deep, and you wonder why it costs so much. The parking isn’t even fully utilized, there’re plenty of spaces.

Oran, I mean no disrespect to small business owners who’s businesses are in new mixed use buildings, nor do I mean to imply those owners are raking in money.

However I’m very interested in the market dynamics that lead the spaces in newer mixed use buildings being attractive to only certain types of busineses, to the point where it has almost become a cleche.

Part of it has to do with name recognition. Presumably people who aren’t familiar with the actual business will gravitate towards names they recognize. Richard Layman talks a lot about retail mixes and creating viable urban areas at his blog, http://urbanplacesandspaces.blogspot.com/.

Branding and homogeneity do make a lot of business sense in our extremely mobile culture. Show of hands, how many people have lived or worked in their current location more than a decade? Branding is good for bringing in the new people, they may not know the neighborhood or the store, but they know the brand.

At the same time, making spaces suitable for “real” restaurants is much more expensive and limits the use of the space. Many of the popular storefront chains do not require a full kitchen with all of its wiring, plumbing, ventilation, and fire suppression requirements. It’s also more expensive to insure a building that has a real kitchen in it, and it may be more expensive for other business tenants in the building to insure their own businesses. (Besides kitchen fire issues, businesses in buildings with real restaurant kitchens are more likely to have claims for backup of sewer and drain — full kitchens mean more grease in the line, even if they do a good job maintaining their grease traps.)
Not as bad as sharing a building with heavy manufacturing or hazardous materials, but it is an issue.

I have to agree…must as the Centralizers would have all all stacked in neat rows like containerized cargo, that sort of thinking is really what lead to the destruction of American towns, the overcrowding of cities and homelessness.

There always needs to be low cost of entry for new business and for business to serve (and employ) people at the bottom end of the income chart. It is far better to have a bit of messiness, and not all be served by the same subway platform (even if it has two sides) than for people to beforced from a low paying, but adequate job, into welfare servitude to state that makes them uncompetitive.

Sorry, Bernie, Texas doesn’t have “a lot of oil”. There is some ridiculous claim at the front of the link you referenced that says there are “129 billion” barrels. Then there is the disclaimer that “some is hard to get”. But the corker is at the bottom, where the chart of recoverable reserves is a bit more than six billion.

Now six billion barrels would be a megafield if it were all in one place. But in fact it’s spread out over thousands of square miles in parallel reef formations all over the south and southeast part of the state and offshore in parallel reefs. There was the huge pool of WTI along the New Mexico border, but most of that is unfortunately consumed.

The developers are not the problem, we are. Of course they try and maximize returns. That’s their job. They won’t be a developer for long if they lose money or don’t make enough to make their investors happy. They also have to do really well on successful deals to pay for failures. They will always try and build what is most profitable, we however can change that calculation.

Instead of appealing to various ideals we think they should adopt, we should make them do what we want though regulations and incentives. You want more development around transit, relax height restrictions and offer some tax breaks, streamlined permitting, etc. How about City Light partnering with developers to put more solar and wind power on buildings? The city pays the extra cost upfront and the developers pay the same they would have paid for electrical for say 20 years, then they own the installed system. There are a lot of things we can do, but we need to do them.

We can also refuse to buy their products unless they build what we want. As much as we lament subdivisions they still sell. A good number of people still want the large house in the suburbs. We need to continue to make urban living more desirable and stop subsidizing suburban living.

Blaming the developers is easy, but futile, and misses the real point that it is all of us that has the responsibility here.

Like it or not, real estate development is a business. If you want to influence behavior, you need to change the business environment. This can be done prescriptively (zoning and building codes, for example) or with incentives (tax breaks for certain uses, subsidies for affordable housing, etc.)

But if it doesn’t pencil out over a reasonably short time frame, no amount of rhetoric alone will produce a meaningful change in business practices.

Land use law sets the regulatory environment. Commercial financing and the internal revenue code set the financial framework. Surrounding uses and populations define the viable markets for a particular property.

Talk? Talk is cheap. Demonstrate how it helps their bottom line, or prove why it’s so important that they should risk bankruptcy to pursue a less-profitable approach.

Until the 1950s, cities around the world were compact and walkable because this was the most cost effective way to build and the market demanded it. After 1950, the US heavily subsidized suburban life through tax cuts, “free”-ways, GI Bill home loans, etc. This is not a natural pattern of development.

Because we have built this way for so long, the market sees this as the standard. Yes, 600,000 live in urban Seattle, but 2.7M live outside the city, mostly in more car-centric suburbs. Many of my close friends and family are uncomfortable in the city because they don’t know how to catch a bus or find parking downtown. They are apprehensive about eating at a restaurant that is not a chain or shopping on foot. They expect to do everything by car. I am an exception because I lived in Germany for three years, walked to do all my shopping, bicycled to work, and learned how to use the rail network. Now I see that suburban living is the worst of both worlds: all the costs, traffic, noise and pollution of the city, with rural isolation and travel times.

We need a paradigm shift, and it starts with economics. We need to stop subsidizing suburban living. When the true costs become apparent, the market will choose the more cost effective alternative: compact, walkable communities. My family and friends will adapt and learn how to use the bus. They will get used to walking to the store, and this will become the new normal. It will take a generation to get back to this, but the sooner we start, the better off we will be.

Worst of both worlds is exactly how me and my buddy describe it. I grew up in bum**** S. Alabama, where my farm was on the OTHERSIDE of the neighboring community and it took me 12 minutes to get to work. It’s 40 minutes to the nearest Wal Mart (our K Mart closed 10 years ago).

I’m back home for the holidays and while it has it’s problems there are some cool things about it (like going out to my farm, getting the jeep stuck, shooting guns, drinking beers, starting fires, etc). I can take that.

What I can’t stand is my current residence in Fayetteville NC. Horrible freaking town. Couple hundo K people, tallest building is 8 stories. Sprawl sprawl sprawl. No public transportation, but even worse no actual straight roads. Everything is 25 minutes away, and 18 turns. All subdivisions and strip malls. Every day I have to remind myself of the training I’m getting, the oppertunities for me and my wife to go to school, the added deployments I’ll get and the money we’re able to put back so that when my contracts up we can move back to Seattle. Not back to Bellevue, but to Seattle Seattle.

The commoditization of real estate financing has a lot to do with it. Before the 1980s, most buildings were built by their owners and owned for decades if not forever, so they had an incentive to build something well that would last. Mortgages were made by local banks who kept them till maturity, so they had an incentive to make sure the building would last. Speculative development (a developer building something to sell) was not common — with the exceptions of new suburbs, urban renewal, and some office buildings.

Then Wall Street began investing in real estate, and speculative development increased. The interests of the developers, buyer-owners, banks (who sold the loans), and shareholders (who bought the loans) diverged. The owner wants the building to last and remain relevant, but none of the others care. (Well, even many owners care more about granite countertops and stainless-steel appliances than solid construction.) Exterior aesthetics became coarser-grained as the target audience changed from pedestrians to drivers, because drivers can’t see close-up flaws or detail work.

Strip malls are a symptom of the problem. New ones are expensive, but older ones are decaying and taking any businesses they can. And owner-built ones with small businesses are doing fine at Othello Station. The decay of strip malls is the Wal-Mart effect. New malls get built on the outskirts and suck away business from the older malls, while new Wal-Marts get built on the outskirts and older Wal-Marts are simply closed and left as ghost buildings. The effect is not as big in Seattle as in other places because Wal-Mart itself is new to the region and has only a few stores, and the existing malls are doing well (except the Auburn Supermall), and University Village became a successful infill “mall”.

The solution may be more owner-built developments, updating the zoning laws, and convincing the remaining Wall Street skeptics that walkable designs are the best investment.
This is all from “The Option of Urbanism”.

The good news is that even developers, banks, and zoning commissions are realizing that dense pedestrian development is the kind that holds its real estate value. But it’s still a sledgehammer approach, based more on what the market will buy than on what the owners really want. Because many owners only vaguely understand what they want. They fondly remember Main Street and visit its modern imitations — shopping malls and Disneyland — and wonder why something seems missing. Yet they insist on parking and road space and a bigger house, without realizing that’s what caused the imbalance.

“Until the 1950s, cities around the world were compact and walkable because this was the most cost effective way to build and the market demanded it.”

The same book says it started in the 20s. GM sponsored a “Futurama” exhibit at the 1939 New York World’s Fair, which popularized the vision of automobile suburbs. “Leave it to Beaver” and “Bewitched” did not show how most people lived but how they wanted to live. People in the 50s wanted suburbia but actually lived in 1920s walkable neighborhoods, because construction had been halted by the Depression and WWII and was just getting restarted. Full suburbanization was achieved only in the 1970s. So what we think of as “1950s suburbia” is really the 70s and 80s. Now people watch TV shows about city living because many people want that but find their options limited.

Another thing about 1940s-50s suburbia: the houses were small. Less than 1000 square feet. They can still be seen in Mountlake Terrace, SeaTac, the older houses in Bellevue, etc.

Question: What’s your beef with the Bellevue Towers? Correct me if I’m wrong, but doesn’t that project hit 4 out of 4 of the shared goals you mention? (Livable communities, aesthetically accommodating environments, ecologically conscious developments, availability of non-SOV transportation modes, and much more.) Sure, the aesthetically accommodating environments is debatable, but according it their website, the building is very green, and it’s also located next to a transit center and future light rail line. Wouldn’t a better example of the type of thing you’re talking about be the Microsoft campus?

Hate to shatter your stereotypical views of Bellevue, but Bellevue is actually more diverse than Seattle. “According to new census estimates this week, Bellevue now has a larger percentage of nonwhite residents than Seattle.”

Wow, some guys can’t win for losing. Kemper Freeman Sr certainly saw RE development as a multiplier- he went to great efforts to build Bellevue Square with quality stores and restaurants- but mention his name now and all you get are sour looks.

With apologies, Sherwin is missing a very simple fact here- real estate developers are real estate developers. They do what we tell them to. You or I could be real estate developers too- if we understood the land use codes, the building codes, the GMA codes, the fire codes, the housing codes, etc, and if we understood the markets in which we get money, land, materials, labor, and customers. That’s all there is to it! Is this a great country, or what?

And we have a vernacular. Migod do we have a vernacular. After a day driving around looking at old trolley routes in Seattle last year, I was ready to pack Seattle’s architects off to Western State and let the construction foremen design the buildings.

To be honest, while it seems the post comes from a vague feeling that RE developers ‘done us wrong’, I got sort of lost trying to figure out where it went. And just plain gave up when I reached this sentence: “If there is no motivation to apply form to function, vice versa, and everything in between, then real estate has failed to compliment land use.” Somehow I ended up wondering if a Klein bottle might possibly “apply form to function, vice versa, and everything in between”.